LetsLearnFinance

USA Insurance Sector - Slow Down

Recession in Global Economy has definitely created a huge impact on world market and insurance sector has also been hit by the financial slow down.

The catastrophic impact has become prominent with several millions being wiped out from the industry and many insurance giants witnessing sluggish growth and even negative return since last year as compared to returns booked and revenue generation analysis on quarterly basis.

Let us brush through a few points to carry forward the analysis.

Several millions were invested in financial institutions according to the portfolio set up which had badly affected the insurance sector on a whole.

Going by the available data, Hartford’s financial erosion reached around $2 billion during third quarter of 2008 as compared to $850 million gain during the same period the year before. MetLife’s accounts witnessed shooting up of costs in leaps and bounds with more than $ 1 Billion draining out to meet the claims and benefits. With rising cost and dampening effect on profit margin Insurance companies coughed large sum of money with little margin to fall back on.

Analyzing the problem from economic point of view, the gross approach of portfolio build up and direction of monetary flow boomeranged in many ways fuelling the problem. The portfolio had major exposure in fixed maturity investments like bonds mainly corporate bonds and with lesser credit liability; the insurance companies are witnessing fast erosion of asset value.

With the fall of value of the bonds, the claims and benefit payments are getting hard for the companies, drawing them to the verge of facing the problem of survival.

The most likely effect of this scenario may be total government assistance to sail through the tough period as well as several mergers and acquisitions may occur.

The question of survival now hovers around for most of the insurance companies.

Thanks

Pamela